Gain in jobs less than predictions

Economists say 108,000 rise weak but not worrisome

January 07, 2006|By James P. Miller, Tribune staff reporter

U.S. employers added a surprisingly feeble 108,000 jobs last month, the Labor Department reported Friday, but many economists said the shortfall reflected technical factors rather than a slowing economy.

While disappointing, the employment report "was not as weak as it looks," said Danske Bank economic analyst Peter Possing Andersen.

"The job market still has legs," echoed Wachovia economist John Silvia, "despite the head fake" of the December data.

Indeed, the Bureau of Labor Statistics said the nation's unemployment rate, which is calculated from a different survey, ticked downward to 4.9 percent from 5 percent in November. The jobless rate has been toggling between 5.1 and 4.9 percent since March.

The jobs data, reasonably good but definitely not strong enough to set off inflationary alarm bells at the Federal Reserve, went over very well on Wall Street: Stocks surged to close out a strong week.

The Dow Jones industrial average climbed 77.16 points to finish at 10,959.31, its highest level in more than four years. Over the first week of 2006, the so-called January rally has carried the Dow up 241.81 points, or about 2.3 percent.

Based in part on a strong November, most experts had been forecasting the economy would create a net 200,000 new jobs in December, and possibly as many as 230,000. So when the closely followed jobs report was released Friday morning, observers initially were jolted to learn job creation was about half that strong.

Certain reasons were easy to spot. Construction jobs had been expected to show a big increase because of post-hurricane rebuilding but instead declined by a net 9,000. Unseasonably cool weather may have contributed to the first monthly drop in construction jobs since March 2004.

In addition, retailers played it safe by holding down payrolls during the holiday season, causing a net decline of 16,000 jobs in retail employment.

For many economists, however, the most prominent factor was the Labor Department's upward revision of November's jobs data.

A month ago, the government's preliminary reading showed a robust 215,000 new jobs had been created in November. But Friday, the Labor Department said its preliminary figure had been 90,000 too low and boosted the number of jobs created in November to 305,000.

"Yes, the December payroll gain was much less than expected and, on its own, a major disappointment," noted Joel Naroff, head of Naroff Economic Advisors. But throughout the autumn, he said, nationwide jobs data have been clouded by Hurricane Katrina-related disruptions, making revisions more prevalent than usual.

"If we look at the past two months," Naroff said, "there has been more than 400,000 net new positions created, and that is right where most economists have expected it to be."

To accommodate the growing population, the nation has to create well over 100,000 jobs each month just to keep unemployment steady.

The monthly jobs report is one of the most closely scrutinized of all economic indicators, because the health of the job market not only is a crucial barometer of the nation's economy, it often has political ramifications as well.

In the early years of the economy's rebound from the 2001 recession, job growth was weak and intermittent, fueling fears of a "jobless recovery." But more recently the job market has strengthened. At the end of 2005, the number of Americans with jobs stood at 142.8 million, up 2.6 million from 2004.

While construction and retail hiring proved disappointing in December, manufacturers unexpectedly managed to add a net 18,000 jobs. The manufacturing sector remains under stress in the U.S., however, and for the full year the industry lost a cumulative 51,000 jobs.

On Wall Street, some traders had been worrying that if Friday's jobs data proved to be unexpectedly strong, interest-rate policymakers at the Federal Reserve might become worried that a tight job market could be an inflationary force. The Fed, which has been methodically tightening credit for the past 18 months, generally is expected to raise rates by only one or two more quarter-point increments.

As it turned out, however, Friday's report "delivered just what the market wanted," said A.G. Edwards market strategist Alfred Goldman.

"Payrolls are showing steady growth, but not enough to prompt the Federal Reserve to change its stance on interest rates," he said.

Some observers did spot worrisome trends in the latest figures. A slight but not insignificant rise in December's average hourly earnings could be an early signal that possible wage pressures might boost inflation.

Others questioned the strength of the hiring trend.

The economy's post-recession expansion, now in its 50th month, has created far fewer jobs than previous recoveries did over the same period, said JPMorgan economist Anthony Chan. The job-recovery gap was at its widest early on, Chan observed, but even now the gap remains "quite wide and significant," he said.